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The payment industry is in shift yet again. Once the credit card was a revolutionary idea that took years to catch on, and now the same scenario is happening to mobile payment platforms, led largely by the long-awaited and now two-year-old Apple Pay.
Like the credit card before it, and unlike what was expected of it, Apple Pay is taking its sweet time to fully catch on. That’s no fault of Apple, mind you – the payment platform, while the most popular of its kind, simply isn’t as widely adopted by users as it could be. Why is that? Well, it’s complicated.
Are you really telling me Apple Pay hasn’t caught on?
Apple Pay is largely hailed because of one thing in particular, and it’s something Apple has become known for – ease of use. The platform doesn’t just make things easy by eliminating the need for a physical wallet; its software is designed and implemented for ease-of-use too.
Once set up, for example, all a user really has to do is switch on their device, input their fingerprint for authentication, and hold the phone to the payment terminal. If a user is instead using Apple Pay to pay for an in-app purchase, things are arguably even easier than that – simply hit the “Buy with Apple Pay” button, authenticate your identity with your fingerprint, and make your purchase.
If Apple Pay is so easy, then why hasn’t it caught on the way some expected it to?
Before we talk about why Apple Pay hasn’t caught on, it’s important to note the ways it has caught on. Apple Pay is the most popular mobile payment service out there, and while some other services are arguably growing faster than Apple Pay, they still don’t come close to the service’s user base. In Apple’s Q2 2016 earnings call, the company noted that Apple Pay’s growth was up more than 450 percent year-over-year in June 2016, highlighting that “tens of millions” of people had adopted the service. Not only that, but in the U.S. a whopping three quarters of contactless transactions are conducted with Apple Pay – putting services like Android Pay to shame despite the fact that there are more Android users, even in the U.S., than Apple iPhone users.
But that doesn’t mean the service is being actively used as much as it could. In fact, in a poll of iDrop News Twitter followers, we found that a hefty 61 percent of responding users with Apple Pay-compatible smartphones “never” used Apple Pay, while 15 percent used it monthly, 14 percent weekly, and only 10 percent daily.
— iDrop News (@iDropNews) October 8, 2016
In other words, most people who have access to Apple Pay don’t use it at all, and even the majority of those that do use it less than once per week. That’s not so great for Apple, who’s dreams of totally replacing the physical wallet clearly have a long way to go before they’ll be fully realized.
The key may not be awareness, it may be store-adoption
Safe to say, the 61 percent of people who voted in our poll that never use Apple Pay don’t not use it because they aren’t aware it exists, so while it may be true that some people simply aren’t aware of Apple Pay, the majority are.
That suggests that Apple Pay’s adoption issues have nothing to do with awareness – people just don’t want to use the service, or they can’t be bothered. But why?
The issue could well be that users don’t want to have to deal with more than one payment type – that’s to say, until users can well and truly make the switch to Apple Pay and leave their credit card behind, Apple Pay simply isn’t going to gain the ground that it could. What that means is that Apple Pay won’t see wide adoption until all stores allow it, permitting users to forget their wallets altogether.
Every store actually partaking in Apple Pay is long from being a reality though. While Apple has deals with all four major credit card providers – Visa, MasterCard, Discover, and American Express – as well as support from a hefty 600 banks and credit unions in the U.S., a lot of work still has to be done in the retail world. According to Apple, in February of this year Apple Pay was operational at 2 million retail locations in the United States. That certainly sounds like a lot – and in truth it is – but it doesn’t represent the entire retail landscape in America just yet. Of course, it is important to note that Apple Pay is growing every single month – when it first started in September of 2014, the payment platform was available in just 220,000 locations around the U.S.
Along with the idea that users want to completely leave their wallets behind, however, are factors that are out of Apple’s – and stores’ – control. For example, most people have their driver’s license in their wallet, and while most agree that eventually we’ll have the ability to prove our identity on our smartphones, for now, that idea is in early development.
The gist of things is this: while some may have thought that the likes of Apple Pay would be an overnight success, the truth is far more complex. User adoption drives store adoption, and it looks like the other way around is true too. Hopefully enough stores can begin adopting the service that users can start leaving their wallets at home, in which case services like Apple Pay and Android Pay can truly take off.
What makes Apple Pay so great anyway?
There are plenty of reasons to adopt mobile payment platforms, the least of which is convenience.
Perhaps most important is the fact that Apple Pay is far more secure than other payment systems. To understand how its so secure, it’s first important to understand how credit cards work.
There are typically four parties involved in a credit card transaction. Here are the four parties and their role.
- The merchant is the business or store offering the goods that you want to buy.
- The card issuer is the company that issues the credit cards and gives your credit. In most cases, the card issuer is a bank or credit union.
- The merchant acquirer is basically the bank of the merchant – it’s the company that processes credit cards and routes transactions to networks like Visa and MasterCard.
- The processor sends the transaction information to the card issuer, which then either approves or denies the transaction and delivers the funds to the merchant.
When you buy something, the payment terminal sends the identification number of the merchant, along with the card information and the transaction amount, to the card processor. That processor system them sends and authorization request to the card issuer (or your bank), which is routed through the card network (Visa, MasterCard, etc.). The bank then verifies that information and makes sure that you have enough money for the item in question, after which the approval (or denial) of the transaction is sent to the merchant.
The second part of the process involves the merchant sending transaction information to the merchant acquirer, after which that information is sent along to the merchant’s accounting system – which deducts a fee – and sends information along to the merchant’s individual account related to how much money should be put into the account.
As you can see, the whole process is extremely complex, and this explanation really only hits the major points – in other words it’s more complex than it sounds, and there are plenty of places where the transaction can be intercepted.
Apple Pay is much more secure than traditional and chip-based credit cards
Perhaps the most important aspect of why Apple Pay is secure is the fact that it uses tokenization, which basically means that your actual credit card information isn’t transmitted to anyone – only Apple. So, when you scan your device, instead of your credit card information being sent over, Apple uses a stand-in “token,” which is the “credit card information” used for the purchase. The transaction is then approved by your bank, but instead of the money being sent to the merchant, it’s sent to Apple, who then sends money to the merchant.
That’s all well and good, but there’s another layer of protection here – the tokenization system works alongside another system called a cryptogram, which is an identification number generated for each individual transaction. What that means is that even if someone were to intercept the payment information, it would be useless to them – it’s encrypted, and it’s only good for the transaction in progress.
It’s important to note that Apple isn’t the first to implement tokenization by any means – security experts have been pushing the system for years now. Of course, that’s not where Apple Pay’s security measures stop. On top of the tokenization for purchases, Apple also makes sure its you using biometric authentication, which is, in this case, your fingerprint. When you make a purchase through Apple Pay, you need to scan your fingerprint so that Apple can determine that it’s actually you – no fingerprint, no purchase.
Fingerprints aren’t totally fool proof – but they are hard to replicate. Someone could go through the process of lifting your fingerprint and steal it, but the process is time consuming and a lot harder than what some may think. Having said that, most experts agree that the fingerprint should be used as one factor in a two factor authentication system – as mentioned, fingerprints aren’t totally safe. While they’re generally safer than passwords and PIN numbers, they do have their drawbacks – unlike passwords and PIN numbers, once your fingerprint is stolen, it’s stolen for good. You can’t then change your fingerprint to get back that security.
So we know that Apple uses tokenization for your transactions and that only Apple knows your credit card information in this scenario – but what about Apple itself. Could someone potentially hack into Apple and steal your information? The answer is complicated – in reality anything can be hacked – even Apple. What comes to mind is the 2014 iCloud hack, which resulted in private pictures of hundreds of female celebrities being stolen and posted online. Overall not a very nice situation. Since then, however, Apple has implemented a number of drastic changes to how it handles your private information.
All of your information, including your credit card information and your fingerprint information, is stored on what’s called a “secure element,” or a portion of your phone that isn’t even part of the iOS operating system. That information can’t be very easily accessed, so simply hacking iOS generally won’t result in the information being stolen.
It’s also important to note that actually hacking iOS to get personal information isn’t exactly the easiest thing to do – even Apple can’t necessarily access your information. According to the company, no one without the passcode can access the phone, not even Apple. That’s because iPhone’s use a 256-bit unique security key, which is unique to each iPhone and only stored on the iPhone – not on Apple’s servers. That key is used in conjunction with a password or PIN number to unlock the phone – so if someone were to get the key somehow, they still wouldn’t be able to access your information without your password.
Of course, that doesn’t mean that no information is stored on Apple’s servers – in fact, plenty of credit card information does in fact live on Apple’s servers, which has been true ever since Apple first started implementing the iTunes store. Apple, however, uses extremely complicated encryption to store this information, so even if someone were to steal the “credit card information” it would be encrypted in a way that makes it extremely difficult to hack into. Not impossible – just difficult.
So what does this all mean for me?
Delving into the security of a system is all well and good, but it doesn’t really mean much for people who simply need to know that their payment system is secure. For end users, the best thing about Apple Pay is going to be the fact that it saves time. How much time? Well, while we don’t really have any scientific evidence to back this up, we argue that Apple Pay saves a lot of time – and while each transaction may only be a few seconds, those seconds really add up.
Think about the steps in each payment method. With a credit card, you need to take your wallet out of your pocket or purse, open that wallet up, take the right card out, slide it in the pay terminal, realize it’s a chip card and insert it instead, then wait for the whole process described above to happen. Then take the card out, put it back in your wallet, put your wallet back in your pocket, and you’re done.
We’re not going to sensationalize Apple Pay, so here is the Apple Pay process described the same way.
First, you need to take your phone out of your pocket, scan your fingerprint, wait for the transaction to be approved, then turn the screen off and put the phone back in your pocket.
We count five steps with Apple Pay compared to the credit card’s eight – or seven if you remember it’s a chip card the first time. Either way, it’s a lot easier with Apple Pay, and it saves you from having to carry a wallet around in the first place.
I’m in. How do I set Apple Pay up?
Have we convinced you that Apple Pay is the way to go? Great! Thankfully, the service is compatible with a range of your Apple devices, not just your iPhone. Let’s start with the iPhone nonetheless.
First, open up the Wallet app, then tap the “Add Credit or Debit Card” button. You’ll be prompted to enter your card information or take a photo of your card (or simply enter the security code if it’s the same card you use with iTunes), so follow the on-screen instructions. Next up, Apple Pay will verify the information with your bank, and if your bank needs more information, your bank will let you know. If your iPhone prompts you to provide the additional info from your bank, head to Settings, then Wallet & Apple Pay, and tap the card, then input the required information. After the card is verified by your bank, tap the Next button, and you’re all set up.
Next up is the Apple Watch. If you want to use Apple Pay with your Apple Watch, head to the Watch app on your iPhone, then hit the My Watch tab. You’ll see a button for Wallet & Apple Pay, so tap on that. Follow the steps to add a card, then hit the “Next” button. Your bank information will then be verified by your bank, and like on the iPhone, if your bank needs more information, you’ll be notified and you’ll need to go back to the same tab in the Watch app to add that information.
To use Apple Pay on your Mac, you’ll first need an iPhone, as you still need to use the iPhone for authentication. You’ll also need to make sure that continuity is set up properly between your iPhone and your Mac, as the two need to work together in order to verify payments. Last but not least, you can only use Apple Pay on Safari. You should then be able to hit an Apple Pay button on the payment pages for many of the websites you shop on.
Where can I use Apple Pay?
Apple Pay is employed at many different online and brick-and-mortar outlets including McDonald’s, Dunkin’ Donuts, Trader Joe’s, Sephora, Groupon, Target and many, many more. To view a list of major retailers and apps that accept Apple Pay, click here.
The future of Apple Pay
Apple Pay is likely to remain in its current form over the next few years, however it will be refined. For example, you won’t need to use your iPhone in conjunction with your Mac to use the service on your Mac – instead the Mac will have authentication methods, like perhaps a fingerprint sensor, built right into it. Not only that, but the fingerprint won’t be the only way to verify your identity – for example, at some point your heart rate, as detected by your Apple Watch, could be used to verify that it’s really you.
On top of the mechanics of Apple Pay, the service will also continue to grow in size. It will be implemented by more and more stores as time goes on, and eventually, when almost all stores use the service (and when you can carry a digital copy of your ID), you’ll be able to actually stop using your physical wallet.
Apple Pay, along with Android Pay and Samsung Pay, will continue to grow and be used as a prominent way to pay for goods. Not only is it more secure than physical cards, but it’s easier to use too. Because of the many benefits of using Apple Pay over credit cards, we’re confident that an exponentially larger number of people will begin to use the service over the next few years.
What’s excites you most about Apple Pay? Speed? Simplicity? Security? Or something else?
Let us know in the comments below!